WTO’s Doha round in an era of high food prices
Kym AndersonUniversity of Adelaide, Australia
Review session for Ch. 3 of the Monterrey Consensus, on International Trade as an Engine for Development
United Nations, New York, 19 May 2008
Four key pointsCost of trade distortions, esp. in agriculture, is very high, and esp. for developing countries
including from DCs’ own policiesAgric under GATT has been difficult politically to reform, because of fluctuating and falling real world prices for food during past 60 years
To keep domestic food price stable, many govts. sought to insulate and increasingly protect farmers from international market forces
• which makes the int’l market even less attractive to other countries, who follow suit
Four key points (continued)We have suddenly entered a new era of higher int’l food prices that may be prolonged
offering a fresh opportunity to reform agricultural policies under WTO’s DDA
But for there to be sustained benefits, DDA’s agric negotiations have to be both ambitious and with minimal exceptions
1. Cost of trade protection policies is very high
Global cost of 2004 tariffs on all goods plus agricultural subsidies: $287 billion per year
plus cost of services regulations (so >$600 billion?) As % of GDP, cost to developing countries is 1/3rd higher than to high-income countries
and nearly twice as high for Sub-Saharan AfricaThese costs (which are lower-bound estimates) are potential gains from trade liberalization
Sources of cost to global economy
$ billion due to policies in:
Agric & food
Textiles clothing
Other merch.
TOTAL
High-income countries
135 15 9 159(55%)
Developing countries
47 23 58 128 (45%)
All countries’ policies
182(63%)
38(14%)
67(23%)
287(100%)
Sources of cost to developing countries
$billion due to policies in:
Agric & food
Textiles &
clothing
Other merch.
TOTAL
High-income countries (50%)Developing countries (50%)All countries’ policies
(63%) (25%) (12%) (100%)
2. Real international food price trend and fluctuations, 1900-2005
20
40
60
80
100
120
140
160
180
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Year
1900-2005: -0.8% p.a.
Int’l prices in Jan-Feb 2008 (current US$) compared with Jan-Dec 2006
Source: World Bank (2006 = 1.0)Grains 1.7Vegetable oils 2.2Petroleum 1.4Coal 2.3Urea fertilizer 1.6Phosphate rock 4.3
IFPRI’s 2008 projection of international prices to 2050, real relative to 2000
Reference case: slight
slowdown in ag R&D growth
Alternative cases:
faster/slower ag R&D growth
Rice 1.3 0.7/2.6
Wheat 1.8 0.8/4.8
Maize 1.6 0.5/6.5
Soybean 1.2 0.8/1.8
IFPRI’s real price projection to 2050 (continued)
Reference case: slight
slowdown in ag R&D growth
Alternative cases:
faster/slower ag R&D growth
Beef 1.4 1.1/1.9
Sheepmeat 1.1 0.9/1.6
Pork 1.3 0.9/2.0
Poultry 1.2 0.8/1.9
3. Why is a new era of higher int’l food prices relevant to the DDA?
Because commitments to lower bound agric tariffs and subsidies at WTO will be politically painless for at least several years
Providing ample time for farmers and consumers to adjust
4. But care is needed if DDA benefits are to be sustained
DDA’s agric negotiations have to be both ambitious and with minimal exceptions
especially in increasing market access but also in domestic support in the case of cotton
Relative importance of 3 agric pillars Welfare effects
from:% for:
Agric market access
Agric domesti
c support
Agric export
subsidies
All agric
policies
Developing countries
109 1 -10 100World 93 5 2 100
Relative importance of 3 agric pillars just for cotton
Welfare effects
from:% loss for:
Agric market access
Agric domesti
c support
Agric export
subsidies
All agric
policies
Sub-Saharan Africa
2 77 1 100World 10 89 1 100
Key agricultural elements of DDA negotiations to watch
Reductions in tariff and subsidy binding overhangTreatment of ‘sensitive’ & ‘special’ products (SSPs)Tariff cap, and whether it applies to SSPsExtent of Special and Differential Treatment (SDT) invoked by developing and least-developed countries in terms of their willingness to reform
Our modelled Doha scenarios75% tiered cut to bound agric tariffs
• without & with sensitive products• without & with a tariff cap of 200%• with & without Special and Differential Treatment (SDT)
75% tiered cut to domestic ag subsidy ceilingsAbolition of agric export subsidies50%/33%/0% cut in bound non-agric tariffsServices policies unchanged
Big cuts needed to reduce applied agric tariffs, because of “binding overhang”
Bound%
Applied%
High-income countries
27 14Developing countries (excluding LDCs)
48 20
Least developed countries (LDCs)
78 13
Also big cuts in domestic support limits needed to reduce DS binding overhang
-
10
20
30
40
50
60
70
EU US Japan Korea Mexico Canada
US proposal
G-20 proposal
EU proposal
Overhang
Applied
0
10
20
30
40
50
Ag+NAMA-SDT Ag+NAMA Ag Only Ag-SSP+Cap Ag-SSP
Doha scenarios: Doha scenarios: Percent gain in real income Percent gain in real income from Doha scenario as share of global trade reformfrom Doha scenario as share of global trade reform
High-income
Developing
Ag+NAMA—Same as above but includes SDT.Ag Only—Only agriculture, no exemptions, no caps, includes SDT.
Ag-SSP—Same as above but no caps.Ag-SSP+Cap—Same as above plus exemptions (HIC-2%, LMY-4%) and caps (200%).
Ag+NAMA-SDT—No exemptions, no caps, no SDT.
Final point: why does tariff binding, and hence reducing binding overhang, matter?
Because in its absence governments can reverse reform and raise agric protection againWhere would Japan and Korea’s agric tariffs be today if GATT had disciplined them when they joined (in 1955 and 1967)?
Will China and India follow NEAsia in raising their assistance to farmers?
-50
050
100
150
NR
Aag
(%)
7 8 9 10Ln real GDP per capita
China Japan Korea Taiwan India
Thanks!
www.worldbank.org/trade/wtowww.worldbank.org/agdistortionswww.worldbank.org/[email protected]